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4 Things to Know About Leveraged Crypto Trading

4 Things to Know About Leveraged Crypto Trading

With billions of dollars worth of volume that are traded every day, cryptocurrencies are considered to be some of the biggest players on the market today. The high volatility and diversity of cryptocurrencies are a couple of the reasons that many day traders and long-term investors are now moving part of their capital from stocks, foreign currencies, commodities, bonds, exchange-traded funds, and other types of tradable assets, little by little. Along with the regular swing trading, arbitrage trading and high-frequency trading, another type of strategy called leveraged trading is now gaining traction in the cryptocurrency market.

Leveraged trading, also called margin trading, is basically the process wherein traders borrow funds from the brokerage to buy and sell cryptocurrencies. This allows them to trade financial assets at a greater volume than usual. The margin requirement, or the percentage of the value that is accounted for every leveraged trading transaction, increases with the volatility of the asset. Thus, volatile cryptocurrencies usually have higher margin requirements compared to any other assets.

Start trading on the margin with now. You can also check out these four things that you need to know about leveraged crypto trading below.

Leveraged cryptocurrency trading is designed for short-term trading.

Like any other processes of borrowing money, leveraged crypto trading also comes at a cost. Marginable securities in your account are considered to be collateral in the case of a margin call. Aside from this, you also have to pay interest on your loan. This amount compounds over time, resulting in an increasing value of debt unless the principal is paid in full. Margin trading is usually combined with day trading and swing trading to help you reduce your risks and maximize your profits.

Leveraged crypto trading is a high risk and high reward strategy.

Margin trading is known as a ‘double-edged sword’ that offers great opportunities for traders to rack up huge gains. Unfortunately, it also opens up the potential for massive losses if the market doesn’t go the way of your prediction. Unless you are a disciplined trader that has a good knowledge of technical analysis or you use automated trading systems to do the work for you, consider leveraged trading to be a dangerous trading strategy.

Leveraged crypto trading is not available for everyone.

Aside from your trading skills and level of aggressiveness in the market, getting started with leveraged crypto trading requires a lot of documents that you need to settle with your cryptocurrency exchange. Exchanges usually set stringent criteria for those who want to do margin trading. GDAX, for example, requires an individual to become an Eligible Contract Participant with access to a substantial amount of capital either individually or through partnerships. Kraken, on the other hand, is less strict, allowing margin trading for all clients between Tier 1 and Tier 4.

Leveraged crypto trading requires traders to have a high level of discipline.

There are many technical details that you need to go over before you can start on your journey to make supplemental income with cryptocurrencies through leveraged trading. You can either go short or long in a trade just like in the stock market but you need to be aware of the time limits that are set for each trade. Without a good knowledge of technical analysis and proper risk management, you have higher chances of losing trades big time.

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